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More Aussie retailers bite the dust

Underscoring subdued Christmas trading, the Australian Bureau of Statistics (ABS) last week reported a 0.1 per cent seasonally adjusted fall in December sales and five retail chains have been placed in the hands of administrators.

The past week also produced announcements that two more Australian retailers could be acquired by overseas-based suitors.

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The appointment of administrators to Marcs, David Lawrence, Allphones, Herringbone and Rhodes & Beckett signalled the failure of December and January post-Christmas sales to continue the promising trading lift of October and November.

The prospect of overseas buyers for Howards Storage World that was placed in the hands of administrators in December and the listed multi-brand retail company Specialty Fashion Group also reflects challenging retail conditions in Australia.

IRW has always had reservations about the ABS retail sales calculations, but they do have some value in monitoring trends and the December statistics do confirm this publication’s pronouncement in our January 24 edition that Christmas was not the bonanza that had been predicted.

IRW’s reservations about the statistics relate to collection methodology and the inclusion of restaurant and entertainment spending in the retail calculations.

The veracity of the figures also looks questionable when it is considered that the ABS claims retail sales in December were $25.6 billion or approximately one third of the sales for the quarter of $74.9b.

October and November 2016 were solid months according to ABS figures, but did they really account for two thirds of sales for the quarter, effectively matching December with its $2 billion plus Boxing Day sales, extended trading hours and Christmas momentum?

That ratio certainly doesn’t seem to tally with historic spending patterns that, not surprisingly, establish December as the biggest month of the year for sales across the board.

Industry associations and some financial analysts were claiming in January that a lift in sales in October and November had continued into December yet the ABS statistics claimed sales fell in the key states of Victoria and New South Wales and flatlined in Queensland.

A rise of 0.3 per cent had been forecast for December by analysts but sales actually fell, keeping the increase in sales for the quarter to less than one per cent, according to the ABS.

Based on the ABS’ figures, analysts blamed the closure of Woolworths Masters Home Improvement chain for spoiling the Christmas cheer in December but there were many retailers hurting in other categories and some hoping that robust sales would literally save them collapse.

There are likely to be more casualties of the current trading conditions as directors and management assess January figures, which will also be subdued, based on our analysis and research of consumer sentiment by the Westpac Bank.

Apart from anything else, the fact that many retailers brought forward Boxing Day and New Year sale activity to mid-December in a bid to prop up flagging Christmas trading must inevitably impact on January results and, for the analysts, Masters Home Improvement is now well and truly gone.

A state election in Western Australia in March is also likely to mean a softening of growth in January and February compared to December, leaving perhaps South Australia and the Northern Territory to fly an optimistic flag for retail sales going forward.

In any event, new store openings are underpinning what growth there is in retail sales but like-for-like increases appear to be modest at best for most retailers, with higher costs and promotional activity to lure customers paring back margins.

Falling sales and margins have obviously forced retailers with mounting debts into administration and as we correctly called last year, there would be no buyers for Pumpkin Patch or Payless Shoes.

PPB Advisory, the administrators for the mobile phone retailer, Allphones, are also unlikely to find a buyer with the more likely outcome of this collapse being the conversion of surviving franchisee stores to other brands.

PPB Advisory has already closed 18 of the 25 company owned stores in the Allphones chain, which was acquired by the Canadian-based AMT Group in 2012.

AMT Group was also the company behind the Samsung Experience Stores in Sydney and Melbourne, which are expected to see a change in ownership following Allphones’ collapse.

When placed into administration, the chain had 84 stores throughout Australia.

PPB Advisory said that the company’s owners could no longer continue to fund the losses of the Australian chain, which has lost sales and market share to JB Hi-Fi, other independent telco chains and the Optus and Telstra corporate chains.

Allphones was founded by Brian Werner in South Australia 20 years and despite its network being around half the 170 stores it boasted at its peak, still claimed to be Australia’s largest independent mobile phone retailer.

The hunt for a buyer

The prospects of a sale of Marcs and David Lawrence might be a little brighter, although the owner of the retail brands, Malcolm Webster, had failed to find a buyer in the past 12 months.

Marcs and David Lawrence have collapsed with debts of close to $30 million and little prospect of much of a return to creditors, including Webster himself who is owed more than $12 million.

Insolvency firm, Rodgers Reidy, has advertised for a buyer for the 52 standalone stores in Australia and New Zealand, as well as 11 outlet shops and 140 concessions in major retailers, including Myer and David Jones.

Webster bought David Lawrence from the South African Truworth Group in 2000 and acquired Marcs from Oroton in 2006.

Webster was a co-founder of the Jigsaw fashion label in 1972 and brought the brand to Australia in the early 1990s but sold out to the British parent company last year.

Rhodes & Beckett’s downfall

Also being offered for sale, in whole or part, are the 29 Rhodes & Beckett and Herringbone stores across Australia, after the German majority owner van Laack GmbH appointed Cor Cordis as administrators as a result of mounting losses.

Eight of the Rhodes & Beckett stores are located within Myer stores.

Bruno Secatore, of Cor Cordis, said unsustainably high overheads, unfavourable leases and the retail market climate contributed to the financial problems of the menswear brands.

Cor Cordis hopes to find a buyer for the online platform and some of the stores, although unprofitable locations are facing immediate closure.

The Poulakis family that established the upmarket Harrolds retail brands were co-founders of the Rhodes & Beckett stores but sold out their interest in the chain several years ago.

Howards Storage World finds a saviour

On a brighter note, as IRW predicted, Howards Storage World, which collapsed last December, has found a buyer and, while the new owner has not been identified, industry sources indicate the trimmed down chain has been acquired by an Asian retail group.

Administrators, Deloitte, announced last week they had found a buyer for the franchise system who will take over 46 stores, 30 of which are owned by franchisees.

The administrators had closed 13 company owned stores, some of which had been surrendered by franchisees.

Deloitte said it has received more than 120 inquiries about the chain with about 30 parties signing confidentiality agreements and four lodging binding offers.

Deloitte said the buyer was an experienced retailer with both international and local retail and franchisee experience, but the identity of the purchaser and the terms of the sale were confidential.

A royal entry into Australia

While it seems Howards Storage World has been sold to an overseas buyer, Specialty Fashion Group has been approached by Al Alfia Holdings WLL, a Qatar-based investment company, about a takeover.

Specialty Fashion Group is the largest specialty retailer of women’s fashion in Australasia, represented by its brands: Millers, Crossroads, Katies, Autograph, City Chic and Rivers.

The business was started by Sam Moss, Ian Miller and Gary Perlstein in 1993 in New South Wales with Miller’s Fashion Club stores Surry Hills and Wollongong.

The company had 147 stores when it listed on the Australian Stock Exchange in May 1998 and has since expanded to more than 1,000 stores and seven online retail platforms.

Specialty Fashion Group achieves around 80 per cent of its sales through a loyalty program, with more than seven million members and an email database of over three million members.

The group’s profits and share price have been adversely impacted by the acquisition of the struggling Rivers business for $5 million in November 2013, leaving the company vulnerable to a takeover play.

Specialty Fashion Group reported a $2.2 million net loss for the full financial year in 2016.

Al Alfia Holding is controlled by the Qatari royal family, who purchased Harrods from Mohamed al-Fayed in 2010, and has indicated it is prepared to offer 70 cents a share for Specialty Fashion Group.

The offer is pitched at a healthy premium to the 52 cents share price the day before the takeover talks were revealed and at 70 cents per share values Specialty Fashion Group at around $135 million.

If the deal proceeds, the retailer would be delisted from the Australian Stock Exchange and operated as a private company.